A Creditable Concern
In late August, the owners of the Hob Nob Farm Café, a downtown Boone eatery, made what some may consider an unconventional business decision.
Mike and Nova Nelson decided they would stop accepting credit and debit cards as form of payment by their customers.
In anticipation of the switchover, the Nelsons brought in an ATM with a 50-cent transaction fee. Three weeks ago, when they made the change, they put a sign on the door of the restaurant notifying patrons they could no longer use their card to pay for their meal. Now, when people are seated at a table, they also receive a document from their server titled, “Help the local economy ... use cash,” that explains the Nelsons’ decision.
“Businesses that accept credit cards are charged a fee for every transaction,” the document reads. “These fees amount to thousands of dollars each month from our small, family-owned business. Multiply our fees by the number of locally owned businesses in Boone, the amount of money each month that is taken from our local economy is staggering.”
For every transaction made with a card, Hob Knob is paying an average of 3 percent to a cardholder’s credit card company. Those fees, in turn, are used to pay for rewards and points associated with the card, Nova Nelson said. She said this surmounts to her business spending more than $2,000 per month to process credit cards, a cost that averages out to around $100 a day.
Carson Coatney, owner of Stick Boy Bread Company in Boone, said that like Hob Nob, his business is having to pay thousands of dollars in credit card processing fees every year. He said the fees, along with rising operating costs, makes it hard for Stick Boy to keep its prices down. It’s been a very frustrating issue over the years, he said.
“I have credit cards, I use them, and I understand why people use them, but a lot of people are unaware of the cost it imposes on small, local business,” Coatney said. “It’s an unfortunate cost of doing business. But, when things reach a certain point, you do have to evaluate the cost of things that you can control on your business.”
Mike and Nova Nelson spent the better part of 2011 evaluating the cost related to processing cards and concluded it was not only bad for their business, but bad for the local economy.
“Those funds that we’re talking about that we pay each month go directly to California via the wire,” Mike Nelson said. “Poof, it’s gone, it has vacated our economy, and for what reason? So we can accept credit cards. To pledge, which is what we have chosen to do, to reallocate those funds back into the community makes the most sense.”
Nova enumerated the ways the money could be put to better use.
“If we had that $100 per day, we could pay our employees better, we could do more repairs on the building, it would help local people who are choosing to work, we could help people in the community who are hungry,” she said.
Mary Scott, of High Country Local First, a local organization that works to support and strengthen locally owned, independent businesses and farms, is supportive of the Nelsons.
“This is great that Mike and Nova have brought this topic up and are spreading the word about credit card fees,” she said. “Not only does the consumer have to pay fees and interest on purchases made, but the merchant does, as well. Small businesses may also have to pay higher fees than larger companies, and, in the end, it all amounts to more money leaving the High Country.”
While ceasing to accept credit and debit cards might sound appealing to some business owners, it does not come without its problems.
Cynthia Wood, an associate professor of sustainable development at Appalachian State University, said Hob Nob’s argument is sound, and they may be able to counter the number of credit customers lost with proponents of local business, but ultimately, they may see people spending less money in their restaurant.
“People in general spend more when they use cards,” Wood said. “It is documented that people spend less when they are using cash than when they are using credit cards, so this might depress the spending at Hob Nob by each customer who might have used a card.”
Hob Nob’s decision could also prove problematic because of tourism’s implication in the High Country economy.
Wright Tilley, executive director of Watauga County Tourism Development Authority, said most travelers expect to be able to pay for goods and services with a credit card or a debit card, and business travelers especially want to be able to use corporate cards. He also noted people who are visiting the area are typically not carrying large amounts of cash any more because of safety concerns.
“I think businesses that accept cards and, perhaps, offer a cash discount will generally be more appealing to visitors than those with cash-only policies,” he said.
Olga Esterson, co-owner of Cafe Portofino, said if her business went the way of Hob Knob, she would not only lose an extraordinary amount of money from tourists, but Appalachian State University students, as well.
“A lot of the college kids, their parents will put money on a pre-paid card for them or set them up with a credit card,” she said. “That’s a way for parents that don’t live here to get money to their kids.”
Esterson said card transactions make up more than 70 percent of her business. She agreed the processing fees are exorbitant, but it’s a cost she’s willing to pay. Not taking cards would mean losing more business than what she pays in credit card fees.
“If you don’t have any cash in you wallet and you come in here to eat lunch and we don’t take cards, you’re going to go somewhere else,” she said. “I can’t see turning away customers and not taking them at all because that’s what they have in their wallet.”
Esterson said accepting cards is also key to keeping Cafe Portofino competitive with other restaurants. Corporate restaurants would gladly take your credit card if the mom-and-pop business won’t, she said. “To run a successful business you have to take them,” she said.
Nova Nelson, despite detractors, said the response to Hob Nob’s conversion to a new cash-based system has been positive.
“People have been really receptive and understanding of our reasoning and our logic to it,” she said. “There’s been a lot of people shocked at how much the fees are taking from small businesses and kind of a realization of the effect that their choice to use credit cards is having on small businesses that they’re trying to support.”
Nova said Hob Nob plans to stick to their decision to remove themselves from the grasp of credit card companies. In the process, she hopes to inspire other Boone businesses and their patrons to be more supportive of the idea of a local economy.
“Let’s just give it a shot and see if it’s OK,” she said. “If we can all carry cash, it’s a choice we can all make, and it could make a massive difference on our local economy. We felt like it was something really important to do not only for us, but as a way out of the economic situation as a whole.”
Coatney said he is closely watching what Hob Knob is doing, and, if its experience is positive, he may consider making a similar move with Stick Boy. He agreed that keeping money local is best for the community.
“If we can make more of that money stay in our community while keeping customers happy, it’s something that I would definitely look into,” he said. “I’m planning to talk to management about it, and we will see if it’s a viable option for us.”